INPUT TAX CREDIT UNDER GST LAW

INPUT TAX CREDIT UNDER GST LAW
CA PRATIK SUDHIR SHAH PRATIK SUDHIR SHAH CHARTERED ACCOUNTANT

INDEX 1. Definitions 2A. Conditions for availing Input Tax Credit
2B. ITC in respect of Bill to Ship to Model 3. Time Limit for Availment and Utilization of Credit. 4. Credit Reversal- Payment not made within 180 Days 5. Ineligible Credits 6. Input Tax Credit for Taxable and Exempt Supplies 7. Rule 42: ITC used Commonly for Taxable, Exempt and Non Business Purpose. 8. Input Tax Credit on Capital Goods 9. Rule 43: ITC on Capital goods used commonly for Taxable, Exempt and 10. ITC on Stock when person is liable to get registered and on Voluntary Registration 11. ITC on Stock when goods become Taxable from Exempt Supply and on conversion from Composition Scheme to Regular Scheme 12. Reversal of Input Tax Credit 13. GST ITC 01 , ITC 02 14 Utilisation of Input Tax Credit 15. FAQ on Input Tax Credit CA PRATIK SUDHIR SHAH

Definitions Capital goods – Goods the value of which is capitalized in the books of accounts of the person claiming the credit and which are used in the course of furtherance of business Input – any goods other than capital goods used in the course of furtherance of business Input service – means any service used in the course of furtherance of business Reverse Charge: Means the liability to pay tax by the recipient of goods or services instead of the supplier of such goods or services Output Tax: In relation to a taxable person, this refers to the tax chargeable under this Act on taxable supply of goods or services or both made by a person or by his agent but excludes tax payable by him on reverse charge basis. CA PRATIK SUDHIR SHAH

Conditions for availing Input Tax Credit
Assessee should be Registered Person under GST Act. Input should be in course or furtherance of Business. Possession of Tax invoice , Debit note or Documents evidencing payment. Receipt of goods / services. Tax is paid by the supplier to govt through Cash or through utilization of Credit. Return is filed by the recipient of goods / services. Amount towards supply of goods and services and tax thereon to be paid to supplier within 180 days from the date of invoice. Not eligible if depreciation on tax claimed under Income tax. Note: Credit to be availed before the due date of filing return for September following the end of financial year or filing of annual return CA PRATIK SUDHIR SHAH

ITC in respect of Bill to Ship to Model
As per Section 10 (1) ( b) of IGST Act, 2017, where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person”. Eg: Mr A of Maharashtra gave order to Mr B of Delhi for 100 Qty of Television Sets. Mr A directed Mr B to deliver goods directly to Mr P in Delhi. In this case whether Mr B (Supplier) shall charge CGST and SGST or Mr B shall charge IGST to Mr A? Ans: As per Section 10(1)(b) of IGST Act, it shall be deemed that Mr A (third person) has received the goods and later Mr A (Third person) has delivered goods to Mr P (Receiver). Mr B shall charge IGST to Mr A. Later Mr A shall also charge IGST to Mr P. CA PRATIK SUDHIR SHAH

Time Limit for Availment & Utilization of Input Tax Credit
I. Availment of Input Tax Credit- Section 16(4) ITC can be availed till Due Date for month of September following the end of financial year to which invoice of goods or services pertains or Date of filing Annual Return Whichever is earlier II. Utilization of Input Tax Credit Provisions in Sec 16(4) is only for availment of ITC. There is no time limit specified for utilization of credit. Hence credit once availed can be utilized at any point of time CA PRATIK SUDHIR SHAH

Q. Availment of ITC Mr A had received an invoice in Feb However he forgot to claimed the credit in Feb Can he claim ITC in following situations? a) Invoice booked in Return of April 18 and annual return filed in Dec 18 Yes Mr A can claim in April 18 as it is availed within due date of Sept 18 return or filing of annual return b) Invoice booked in Return of Sept 18 and annual return filed in Dec 18 Yes Mr A can claim in Sept 18 as it is availed within due date of Sept 18 return or filing of annual return c) Invoice booked in Return of Sept 18 and annual return filed in Aug 18 No Mr A cannot claim ITC as annual return is filed prior to claiming credit. d) Invoice booked in return of Oct 18 and annual return filed in Dec 18 No Mr A cannot claim ITC as ITC must be availed within due date for month of sept for following year. CA PRATIK SUDHIR SHAH

Q. Utilization of ITC Mr A had received an invoice in Feb He booked it in feb 18 and availed the credit which was credited in Electronic Credit Ledger. Mr A did not make any sales for few months and made sales in Jan Can he utilize the credit availed in Feb 2018? Ans: There is no time limit for utilization of credit. Time Limit is only for availment of credit Hence Mr A can utilize the credit in Jan 2022. CA PRATIK SUDHIR SHAH

Procedure for Reversal of Credit-Payment within 180 days
Rule 2 of Input Tax Credit Rules makes provision with regard to reversal of credit when amount is not paid within 180 days of date of issuance of invoice. ITC will get reversed from ECL if balance is available in ECL or it needs to paid if no balance is available in ECL. Registered person shall be liable to pay 18% from period starting from Date of Availing the Credit on such supplies till the date when amount is actually paid. Even if balance is available in ECL still we need to pay Interest, as interest cannot be debited from ECL. Third Proviso to Section 16(2) of the act provides that amount so reversed can be taken as credit when the payment has been made later to the supplier of goods Even Rule 37(4) provides that the time limit prescribed u/s 16(4) for availing ITC (i.e. before the due date for furnishing return for the month of September of the succeeding year or annual return, whichever is earlier) shall not apply for reavailing the credit which was reversed earlier. Hence reavailment can be claimed anytime in future when the payment is made.. Interest is proposed to be removed wef from 01/02/2019 for failure to make payment within 180 days (CGST Amendment Act 2018). Only ITC will be reversed. CA PRATIK SUDHIR SHAH

Under earlier regime, CENVAT Credit reversal applied only to services. Under GST is required to be done in case of non-payment against invoices for goods as well as services Q. Whether reversal of ITC shall apply if tax is fully paid but the value of supply remains unpaid after 180 days ? Second proviso to Sec. 16(2) clearly provides that the same shall apply when a recipient fails to pay the amount towards the VALUE OF SUPPLY along with the tax payable thereon. Hence mere payment of tax within the stipulated period of 180 days is not enough. Even the value of supply needs to be paid within 180 days to avoid the reversal. Q. Whether reversal of ITC is required in cases of part payment of value of supply as well as tax thereon within 180 days ? ITC reversal shall apply only to the extent of proportionate amount. This is because second proviso to Sec. 16(2) nowhere states that full amount is required be paid within 180 days to avoid the reversal. Hence to the extent of amount (including tax) paid within 180 days, ITC reversal is not called for. CA PRATIK SUDHIR SHAH

Q. How to calculate the period of 180 days ? Hence the period of 180 days for determination of ITC reversal needs to be calculated from the date of issuance of invoice and not the date on which said invoice is recorded in the books of accounts or the date on which ITC is claimed. Q. Is interest payable even if ITC availed earlier is not utilized ? Second proviso to Sec. 16(2) provides that interest has to be paid on account of reversal of ITC “AVAILED” Hence even if the ITC availed earlier is not utilized, interest is required to be paid. 18% is proposed to be removed wef from 01/02/2019 for failure to make payment within 180 days (CGST Amendment Act 2018). Only ITC will be reversed. Q. Will ITC reversal apply to ITC claimed under Reverse Charge Mechanism ? No. Second proviso to Sec. 16(2) clearly excludes supplies on which tax is payable on reverse charge basis from its applicability. Hence ITC is not required to be reversed even if payment is not made within 180 days against supplies covered under reverse charge mechanism. Q. Whether ITC reversal is required for transactions covered under Schedule – I ? Schedule – I to the CGST Act, 2017 covers transactions made without consideration (e.g. branch transfer outside State). Proviso to Rule 37(1) provides that the value of supplies made without consideration as specified in Schedule I of the CGST Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16. Hence ITC reversal shall not apply to transactions covered under Schedule – I CA PRATIK SUDHIR SHAH

Ineligible Credit (Section 17(5))
Motor vehicles and other conveyances (Old Provision- Prior to CGST Amendment Act 2018) Input Tax Credit shall not be available in respect of Motor Vehicles or other conveyances Motor Vehicle includes Car, Bus, Lorry, Truck Conveyance includes Vessel (Boat, Ship) , Aircraft, Helicopter and Vehicles Exception for ITC on Purchase of Motor Vehicle: Transportation of passengers Transportation of goods Imparting training or motor driving skills Further supply of such vehicle or conveyance CA PRATIK SUDHIR SHAH

CGST AMENDMENT ACT 2018 Subsection (5) (a) MOTOR VEHICLES FOR TRANSPORTATION OF PERSONS having the seating capacity of not more than thirteen people here ITC is blocked except (A) further supply of such motor vehicles; or (B) transportation of passengers; or (C) imparting training on driving such motor vehicles (aa) Vessels and Aircraft except when they are used–– (i) for making the following taxable supplies, namely:— (A) further supply of such vessels or aircraft; or (C) imparting training on navigating such vessels; or (D) imparting training on flying such aircraft; (ii) for transportation of goods; (ab) Services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa): Provided that the input tax credit in respect of such services shall be available— (i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein; CA PRATIK SUDHIR SHAH

CGST AMENDMENT ACT 2018 Scope of ITC in respect of motor vehicles expanded (Prospective Amendment) As per the existing provisions, the input tax credit shall not be available in respect of the motor vehicles and other conveyances, except when they are used for making further supply of such vehicles or conveyances or transportation of passengers or imparting training on driving, flying, navigating such vehicles or conveyances and for transportation of goods. The recent amendment now provides that the Input Tax Credit shall be available in every situation, if the seating capacity of the motor vehicle is more than 13 (including driver). For other vehicles, the ITC shall be available only if these vehicles are used for the specified purposes as mentioned above. Further, the words ‘Other conveyances’ have been removed. Therefore, input tax credit would now be available in respect of dumpers, work-trucks, fork-lift trucks and other special purpose motor vehicles. ITC of GST paid on Insurance, Repairs and maintenance of motor vehicles (Prospective Amendment) A registered supplier is not allowed to avail of the Input Tax Credit of GST paid in respect of motor vehicles. The Act is silent on the allowability of Input Tax Credit of GST paid on insurance, repair and maintenance of motor vehicles. So, the taxpayers were in dilemma whether such ITC should be claimed or not? It has now specifically been mentioned in Section 17(5) of the CGST Act (negative list of ITC)that Input tax credit of GST paid on services of insurance, servicing, repair and maintenance of motor vehicles shall not be allowed, except in a few cases ie transportation of goods, passengers, imparting training and further supply CA PRATIK SUDHIR SHAH

FAQ on ITC for GST paid on Motor Vehicles Q1. ITC for GST paid on Motor Vehicles Mr X is dealer of Toyota Cars. He buys Car from Toyota company on payment of GST. He than resells the car to Mr Y and collect consideration along with GST. Whether ITC paid on purchase of car is allowable credit ? Ans: He is engaged in business of supply of motor vehicle, hence credit of GST paid will be allowable credit. Q2. ITC for GST paid on Motor Vehicles Mr X bought few Cars (ITC Rs 50,000). He gave all the cars on Rent and earned Rental Income along with GST of Rs 60,000. Whether Mr X is eligible for ITC of Rs 50,000? Ans Yes, since car is used for further Supply (Rent), Mr X is eligible for ITC of Rs 50,000. Q3. ITC for GST paid on Motor Vehicles Neeta Co buys Bus and pays GST on purchase of bus. Such bus is used for transportation of passengers from Mumbai to Gujarat. Whether ITC on purchase of car is allowable credit ? Neeta Bus is providing services of transportation of passengers. Hence credit on purchase of bus is allowable credit. CA PRATIK SUDHIR SHAH

Q4. Popular Motor Training School purchased helicopter. Such helicopter was used for giving training to run helicopters. Whether ITC is allowable on purchase of Helicopter ? Ans: It is providing services in relation to driving, flying, navigating etc. Hence ITC paid will be allowable credit. Q5. X Ltd purchases a Truck and a Car. GST is paid on both. Truck is used for transportation of Goods and Car is used for business purpose of director. Whether ITC is allowable on purchase of Truck and Car ? Truck is used for transportation of goods and hence allowable credit Car is used by director, Even though it is office purpose still it does not satisfy exception category in Motor Vehicles and other conveyance hence credit disallowed. Q6) Mr A bought a Delivery Van for Transportation of Goods – Yes we can avail ITC for any vehicles used for transportation of Goods. Restriction is only on Transportation of persons having approved seating capacity upto 13 (Including Driver) CA PRATIK SUDHIR SHAH

Ineligible Credit (Section 17(5)) - FAQ
Q7) Vichare Courier purchased Motor Vehicle for transportation of Documents and Goods- Ans: Yes we can avail ITC for any vehicles used for transportation of Goods. Restriction is only on Transportation of persons having approved seating capacity upto 13 (Including Driver) Q8) Co A, a Catering Company has purchased Motor Vehicle for transportation of Food Ans: Yes we can avail ITC for any vehicles used for transportation of Goods. Restriction is only on Transportation of persons having approved seating capacity upto 13 (Including Driver). Catering is service however food is goods. Q9) Infosys bought a 15 seater capacity bus for transportation of its employees- Ans: Restriction is only on Transportation of persons having approved seating capacity upto 13 (Including Driver). Since seating capacity is greater than 13, ITC shall be eligible. Q10) Infosys bought a 10 seater capacity bus for transportation of its employees. Infosys is recovering amount + GST from each employee Ans: YES, GST Set off can be taken however Department may argue that employees are not passengers and hence credit should not be allowed Q11) Infosys bought a 10 seater capacity bus for transportation of its employees. Infosys is not recovering any amount from its employees (Assume Gift / Benefit to each employees exceeds Rs 50K) Ans: It shall be deemed supply under Schedule I and Infosys shall be liable to pay GST. GST Set off can be taken however Department may argue that employees are not passengers and hence credit should not be allowed Q12. Infosys bought a 10 seater capacity bus for transportation of its employees. Infosys is not recovering any amount from its employees (Assume Gift / Benefit to each employees is below Rs 50K. (As per Proviso, Infosys shall not be subject to GST as Gift / Benefit is below Rs 50,000. A Co bought a Crane and Dumper for Business Purpose. CA PRATIK SUDHIR SHAH

Ineligible Credit (Section 17(5)) - FAQ
Q13. Co A purchased Bike / Two Wheeler / Scooty for office purpose. Ans: As per clause (28) of section 2 of the Motor Vehicles Act, 1988:- “motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include vehicle running upon fixed rails or vehicle of a special type adapted for use only in a factory or in any other enclosed premises or vehicle having less than four wheels fitted with engine capacity of not exceeding twenty-five cubic centimeters Here cubic centimeters mean CC engine capacity, Hence Bike and Scooty having engine capacity more than specified limit will be covered in motor vehicle and ITC will be not eligible as per section 17(5) CGST ACT. Q14. Ola Bikes bought Two Wheelers for transportation of passengers. Yes ITC shall be available since vehicle is used for transportation of passengers. Restriction of 13 seater capacity is there only where vehicle is used for transportation of persons (Not Passengers). Since OLA is using bikes for transportation of passengers ITC shall be allowed. Q15. Uber Eats is using Bikes for transportation of Food. Yes ITC shall be available as Bikes is used for transportation of Goods. CA PRATIK SUDHIR SHAH

2) Goods or Services provided in relation to: Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such inward supply of goods or services is used by a registered taxable person for making an outward taxable supply of the same category of goods or services or as an element of TAXABLE composite or mixed supply. Membership of a club, health and fitness centre, Rent-a-cab, life insurance, health insurance except where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force or such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a TAXABLE composite or mixed supply; CA PRATIK SUDHIR SHAH

FAQ on Goods or Services provided in relation to Food & Beverages, Catering
1) ICAI has organized GST Certificate course which is taxable supply. It collects say Rs 6,000 for course. Along with GST Training it provides Pen, Books, Samosa, Tea for which no separate consideration is charged. Will ICWA be eligible for GST Credit on Food & Tea ? Ans : Yes, ITC on Food & Beverages which is part of Taxable Composite / Mixed Supply is eligible. 2) Co A is engaged in Taxable Supply of Product A. It has Canteen in its premises for its employees. Whether ITC on Canteen Food and Expense is available ? a) Co A is recovering Full amount + GST for food ordered by Employees. Ans – Co A shall be eligible for GST Set off on Canteen Food and Expenses as it is recovering full amount + gst from employees. b) Co A is providing free canteen food to its employees (Benefit per Employee per year is below Rs 50,000) Ans – Co A is providing free canteen food but benefit per employee per year is below Rs 50,000. Hence as per Proviso to Schedule I it shall not be Deemed Supply. Since Outward supply is not taxable Co A shall not be eligible for GST Set Off. c) Co A is providing free canteen food to its employees (Benefit per Employee per year exceeds Rs 50,000) Co A is providing free canteen food but benefit per employee per year exceeds Rs 50,000. Hence as per Schedule I it shall be Deemed Supply. Since Outward supply is taxable Co A shall be eligible for GST Set Off. d) A Factory is providing a free canteen to its workers as compulsory required by Factories Act. Whether factory is eligible for ITC ? Ans: As per CGST Amendment Act 2018, Yes ITC shall be eligible if it is compulsory as per any other law. CA PRATIK SUDHIR SHAH

FAQ on ITC for GST paid on Rent A Cab Service: Q1. Mr A and his wife Mrs B are both doing jobs. Mr A is working with ABC Ltd and Mrs B is working in Call Centre at night. ABC Ltd has hired Rent a Cab operator to provide cab services to Mr A from office to home. Call Centre has also hired Rent a Cab operator as govt has made it mandatory to provide cab services for women working in night. Is ITC allowable for Rent a Cab Services to ABC Ltd and Call Centre ? Ans: ITC on Rent a Cab is allowable only when govt has made it mandatory. Hence Credit is not allowable to ABC Ltd. However Call center will be eligible for credit. Q2. Co X is running a hotel. Co X also provides rent a cab services to its guests and collect charges of cab from guests along with GST. Co X does not own any cab hence obtain rent a cab services from OLA/UBER and pays GST on it. Will Co X be eligible for Set Off on GST to OLA/UBER ? Co X is providing 2 separate services, Accommodation and Rent a cab services. Since Co X is in same category of business (Rent a Cab), gst paid to ULA / UBER will be allowable credit. CA PRATIK SUDHIR SHAH

FAQ on ITC for GST paid on Rent A Cab Service: Q4. Co X is running a hotel. Co X also provides accommodation services and rent a cab services to its guests (Free) for travel from airport to hotels.. Co X does not own any cab hence obtain rent a cab services from OLA/UBER and pays GST on it. Will Co X be eligible for Set Off on GST to OLA/UBER ? Ans: Supplier of output supply may provide services only of the same category or as a part of a Taxable Composite or Mixed Supply. Hence principal supply should be TAXABLE for this note. (Say for eg: School collects school fees which is exempt and hires Ola for few students. GST paid to Ola is not eligible as principal supply ie School Fees is not taxable) Co X principal supply is accommodation service and rent a cab services even though it is not separately charging for Rent a cab Since Co X is in same category of business (Rent a Cab-Composite) it is eligible for set off for GST paid on OLA / UBER. CA PRATIK SUDHIR SHAH

Q. ITC for GST paid on Food and Beverages: Co A has its board meeting. Co A ordered food, cold drinks etc for directors. Whether GST paid on purchase of food and beverages will be allowable credit? Ans: GST paid on supply of food and beverages (except same category) is disallowed under 17(5). Hence Co A will not be eligible for Set Off. A Kirana shop buys beverages like Pepsi, Coca Cola, Appy etc and pays GST on purchase of such items. They sell such items to customers and collects GST on it. Whether GST paid on purchase is allowable credit? A Kirana shop is engaged in same line of business ie Supply of Food and Beverages, Hence credit is an allowable credit. CA PRATIK SUDHIR SHAH

Q. ITC for GST paid on Beauty Treatment Services: A Producer has hired beautician for Hrithik Roshan for its movie. Producer pays GST to beautician. Whether GST allowable? Ans: A Producer is not in same category of business as that of beautician hence credit will not be available even though it is for business purpose Q. ITC for GST paid on Health and Fitness Services: Gold’s gym hires Mr A (fitness expert). Mr A provides advise, consultancy and training to members of Gold’s Gym. He raise an invoice on Gold’s gym along with GST. Whether Gold’s gym can avail credit? Gold’s Gym and Mr A are both providing services of same category ie health and fitness services. Hence it is an allowable credit in hands of Gold Gym. CA PRATIK SUDHIR SHAH

3) Travel benefits extended to employees on vacation such as leave or home travel concession. 4) Works Contract Services Works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service 5) Construction of Immovable Property Goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business; 6) Composition Dealer A Composition Dealer is not eligible to claim ITC for GST paid on purchase of Goods and Services. CA PRATIK SUDHIR SHAH

7) Non Resident Taxable Person: NRI under GST is not eligible to claim ITC for purchase of goods & services except on goods imported by him. 8) Personal Consumption No ITC if goods and services are used for personal consumption 9) GOODS Lost, Stolen, Destroyed or written off or disposed by way of Gift / Free Samples ITC will be reversed if goods are lost stolen destroyed or are given as gift or free samples for business promotion. (WORD WRITEEN IS GOODS AND NOT SERVICES as services are intangible) 10) Tax Paid in accordance with provisions of Section 74, 129, 130. CA PRATIK SUDHIR SHAH

FAQ on Goods given as Gift / Free Samples Q1) Mr A is owner of AC Shop. During Diwali he gave 1 AC for free to a Customer. Whether ITC shall be disallowed ? Ans: Gift is not defined under GST Act. In order to constitue a gift, the property should be transferred voluntarily and not as a result of a contractual obligation and no advantage of material character was received by transferor. Gift means anything given out of Love and Affection. In above case, Mr A has given AC as gift with the intention of business promotion and to increase the sales. Hence ITC shall not be reversed under Section 17(5). However, As per Clause a of Schedule I, Permenant Transfer / Disposal of Business Assets on which ITC is availed shall be considered as Supply even if it without consideration. Hence Mr A shall be subjected to GST on Free AC to customer. Since supply is taxable, there is no need to reverse Input Tax Credit. Q2) Mr A is owner of AC Shop. During Diwali he gave 1 AC as a Gift to his wife. Whether ITC shall be disallowed ? In above case, Mr A has given AC as gift without any intention of business promotion or to increase the sales. It is out of Love and Affection. Hence ITC shall be reversed as per Section 17(5) CA PRATIK SUDHIR SHAH

FAQ on Goods given as Gift / Free Samples Q3) Mr B, Seller of Jeans made a scheme of Buy 2 Get 1 Free. Whether ITC is required to be reversed on 1 Jeans given free ? Price of each Jeans is Rs 1,000. Ans: 1 Jeans given free of Rs 1,000 is in nature of discount. It is not given as Gift / Free Samples. There is an element of Business promotion in Free Jeans given. Such schemes are introduced to give to the buyer an Incentive to purchase more quantity at a lesser price indirectly by giving something free & hence it is actually a Discount in real sense (Trade / Quantity Discount). As per provisions of Value of Supply, Discount given before / during the supply shall be eligible discount and GST is not required to be charged on Discount amount. Invoice under such schemes, companies shall reduce the value of the product provided free of cost, as a trade discount, from the total value of the products including the product which is to be provided as gift. So Invoice will show Qty sold – 3, Amount Rs 3,000 and than discount of Rs 1,000. So GST shall be charged on Rs 2,000. Companies shall be eligible to avail Input Tax Credit on all 3 Jeans sold without any fear of litigation. Since price of all 3 jeans are included in the Invoice, Schedule I shall not be applicable and GST shall be applicable only on Net Amount (After Dis of 1 Jeans) CA PRATIK SUDHIR SHAH

FAQ on Goods given as Gift / Free Samples Q4) Mr T manufactured a Product. He gave few products as Free Samples. ITC availed by Mr T on manufacturing Product is Rs 10,000. Ans: Mr T shall be required to reverse ITC Credit of Rs 10,000/-. Q5) Mr T manufactured a Product in Maharashtra. He is registered in Maharashtra & Goa. ITC availed by Mr T on manufacturing Product is Rs 10,000. He transferred products from Maharashtra to Goa and than later from Goa such products were given as Free Samples. As per Schedule I, transfer to Related person / Distinct person shall be considered as Supply even if it is without consideration. Hence transfer from Maharashtra State to Goa State shall be considered as Taxable Supply under GST. Since transfer is taxable supply there is no need to reverse the credit under Sec 17(5) by Maharashtra State for transfer from Maharashtra to Goa State. However later when Goa state gives as Free Samples, than GOA state shall not be eligible for GST Set Off. CA PRATIK SUDHIR SHAH

Q. ITC on Tax paid under section 74, 129 or 130 Mr X has supplied goods to Mr Y at price of Rs 10. Mr X collected GST on it and paid to govt. During Audit we found that appropriate value is Rs 15. Mr X paid tax on differential amount on account of suppression of facts. Will Mr Y be eligible for Credit on difference? Ans: Section 74 provides that if the demand for differential tax arises on account of fraud, willful misstatement or suppression of facts than demand shall be made by issuing show cause notice under Sect 74 Mr X has paid tax on account of suppression of facts under Sec 74. Hence such credit is not admissible to receiver ie Mr Y CA PRATIK SUDHIR SHAH

Utilization of Input Tax Credit
IGST to be utilized in the following order:- First utilize towards payment of IGST Second utilize towards payment of CGST Third utilize towards payment of SGST CGST to be utilized in the following order:- First utilize towards payment of CGST Second utilize towards payment of IGST Not to be utilized towards payment of SGST SGST (State A) to be utilized in the following order:- First utilize towards payment of SGST (State A) Not to be utilized towards payment of CGST CA PRATIK SUDHIR SHAH

Rule 42: Manner of determination of input tax credit in respect of inputs or input services and reversal thereof_ Input Tax Credit being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies I) Calculation of Input Tax Credit when Inputs are used partly for Taxable Supplies and partly for Exempt Supplies (a) the total input tax involved on inputs and input services in a tax period, be denoted as ‘T’; (b) the amount of input tax, out of ‘T’, attributable to inputs and input services intended to be used exclusively for the purposes other than business, be denoted as ‘T1’; (c) the amount of input tax, out of ‘T’, attributable to inputs and input services intended to be used exclusively for effecting exempt supplies, be denoted as ‘T2’; (d) the amount of input tax, out of ‘T’, in respect of inputs and input services on which credit is not available under sub-section (5) of section 17, be denoted as ‘T3’; (e) the amount of input tax credit credited to the electronic credit ledger of registered person, be denoted as ‘C1’ and calculated as C1 = T- (T1+T2+T3); (f) the amount of input tax credit attributable to inputs and input services intended to be used exclusively for effecting supplies other than exempted but including zero rated supplies, be denoted as ‘T4’; (g) ‘T1’, ‘T2’, ‘T3’ and ‘T4’ shall be determined and declared by the registered person at the invoice level. (h) Input tax credit left after attribution of input tax credit under clause (g) shall be called common credit, be denoted as ‘C2’ and calculated as C2 =C1- T4; Cont on Next Page CA PRATIK SUDHIR SHAH

Rule 42: Input Tax Credit for Taxable & Exempt Supplies
(i) The amount of input tax credit attributable towards exempt supplies, be denoted as ‘D1’ and calculated as D1= (E÷F) × C2 where, ‘E’ is the aggregate value of exempt supplies during the tax period, and ‘F’ is the total turnover in the State of the registered person during the tax period: Provided that where the registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of ‘E/F’ shall be calculated by taking values of ‘E’ and ‘F’ of the last tax period for which the details of such turnover are available, previous to the month during which the said value of ‘E/F’ is to be calculated; Disallowance of Credit for taxable and exempt shall be made each month. If turnover is not available for the month than turnover must be taken of previous month where Exempt and Total T/o is available. CA PRATIK SUDHIR SHAH

II) ) Calculation of Input Tax Credit when Inputs are used partly for Business Purpose and partly for Non Business Purpose. If common input and input services are used partially for business and partially for non business purpose than it shall be deemed that 5% of C2 is utilized for non business purpose Hence D2= 5% of C2 shall be disallowed Thus even if small quantity of input or input services are used for non business purpose than 5% of C2 shall be disallowed. Hence Total Credit required to be reversed shall be D1 + D2 Eligible ITC shall be denoted by C3 = C2- (D1 + D2) CA PRATIK SUDHIR SHAH

Case Study: Mr A is running a business. Total ITC for April 2018 is Rs 5,00,000/-. Breakup is as follows: Exclusively for Exempt Supply: Rs 1,00,000/- Exclusively for Non Business Purpose : Rs 50,000/- Exclusively disallowed under 17(5) : Rs 50,000/- Exclusively used for Taxable Supply : Rs 2,00,000 Used for Taxable & Exempt Supplies : Rs 1,00,000 Total Turnover during the month = Rs 10,00,000 out of which Rs 5,00,000 is Exempt Supplies. Calculate ITC to be reversed during the month of April 2018 Ans on Next Page CA PRATIK SUDHIR SHAH

Case Study: Ans T = Rs 5,00,000 (Total ITC) T1 = Rs 50,000 (ITC for Non Business Purpose) T2 = Rs 1,00,000 (ITC for Exempt Supply) T3 = Rs 50,000 (Disallowed ITC) T1 , T2 , T3 will all be taken as Ineligible credit and hence it will not get credit in Electronic Credit Ledger of Mr A. C1 = Rs 3,00,000 {T – (T1 + T2 + T3)} C1 shall be credited in Electronic Credit Ledger of Mr A T4 = Rs 2,00,000 (ITC for Taxable supply) C2 = Rs 1,00,000 (C1 – T4) which is common credit attributable to taxable and exempt supplies. D1 = Rs 50,000 (E/f * C2) D2 = Rs 5,000 (C2 * 5%) C3 = Rs 45,000 {C2 – (D1 + D2)} Total Eligible ITC for April 2018 = T4 + C3 = Rs 2,45,000/- CA PRATIK SUDHIR SHAH

Case Study: From the following information, get the figure of total ITC Available:- Taxable Turnover is Rs Crores Exempted Turnover is Rs. 2.0 Crore Total available Credit is Rs. 10 Lacs Input Credit attributable to exclusively Non business purpose = Rs. 50,000/- Input Credit attributable to exclusively exempted business purpose = Rs. 1,00,000/- Input Credit attributable to exclusively for Blocked Credit = Rs. 50,000/- Input Credit attributable to exclusively for Business purposes = Rs. 5,00,000/- CA PRATIK SUDHIR SHAH

Case Study: Answer: Total Credit Available = Credit of Taxable Supplies + Credit available on Common Inputs ie Rs 5,00, ,25,000 = Rs 7,75,000/- Particulars Amount (Rs) Total Credit Available for both Exempt & taxable supplies 10,00,000 Less : Credit related to Exempt Supplies 1,00,000 Less : Credit related to Other Business/not directly related to business 50,000 Less: Credit under Sec 17(5) Amount Credited in Electronic Credit Ledger 8,00,000 Less: Credit related to Taxable Supplies 5,00,000 Common Credit 3,00,000 Less: Credit attributable to Exempt Supplies (3 Lakh * 2/10) 60,000 Less: Credit attributable to Non Business Services (3 Lakh * 5%) 15,000 Credit Available for Common Inputs 2,25,000 CA PRATIK SUDHIR SHAH

Input Tax Credit on Capital Goods
Capital goods" means goods, the value of which is capitalized in the books of account of the person claiming the credit and which are used or intended to be used in the course or furtherance of business - section 2(19) of CGST Act. Capital goods" shall include "plant and machinery" as defined in the Explanation to section 17 of CGST Act – Explanation below Rule 45 of CGST and SGST Rules, Plant and machinery" means apparatus, equipment and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes- (i) land, building or any other civil structures (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises. Input tax credit of tax not allowed if depreciation claimed on tax component. Ineligibility of ITC on pipelines and telecommunication tower Credit of input tax in respect of pipelines laid outside the factory and telecommunication towers fixed to earth by foundation or structural support including foundation and structural support are not eligible for input tax credit - Explanation to section 17 of CGST Act CA PRATIK SUDHIR SHAH

100% Input GST Set Off can be claimed on Capital Goods Capital Goods must be used for 5 years ie 60 months (5% every quarter and part of quarter shall be considered as full quarter) If Capital Goods are sold within 5 years than proportionate credit (From Date of sale to date of completion of 5 years) shall be reversed by debiting electronic credit ledger or electronic cash 5% per quarter (part of quarter shall be considered as full quarter) However, in case of bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15 of CGST Act - proviso to section 18(6) of CGST Act. CA PRATIK SUDHIR SHAH

Question – XYZ Ltd, purchased machine on for Rs 10,00,000 on which IGST was 18%. He availed the input tax credit and utilised the capital goods. On he sold the machinery as second hand goods for Rs 7,50,000. State what steps he is required to take to comply with statutory provisions. Answer: XYZ can avail full IGST Credit in July 2017 of Rs 1,80,000/- (10 L * 18%) Capital Asset is used by XYZ Ltd from 1st July 17 to 02nd Oct 2018 ie 6 quarters XYZ can retain credit of 30% (5% for 6 quarters) of Rs 1,80,000 = Rs 54,000 IGST Credit of Rs 1,26,000/- (1,80,000 – 54,000) to be reversed. Also Co has sold machinery, hence GST on sales shall be Rs 1,35,000 (750000*18%) Hence XYZ shall pay Rs 1,35,000 (Higher of Rs or ) by debiting Electronic Credit Ledger if balance available or by debiting Electronic Cash Ledger. CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Subject to the provisions of sub-section (3) of section 16, the input tax credit in respect of capital goods, which attract the provisions of sub-sections (1) and (2) of section 17, being partly used for the purposes of business and partly for non business purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, shall be attributed to the purposes of business or for effecting taxable supplies in the following manner, namely,- (a) the amount of input tax in respect of capital goods used or intended to be used exclusively for non-business purposes or used or intended to be used exclusively for effecting exempt supplies shall not be credited to his electronic credit ledger; (b) the amount of input tax in respect of capital goods used or intended to be used exclusively for effecting supplies other than exempted supplies but including zero-rated supplies shall be credited to the electronic credit ledger; (c) the amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A’, SHALL BE CREDITED TO ELECTRONIC CASH LEDGR and the useful life of such goods shall be taken as five years ie 60 months from the date of the invoice. Provided that where any capital goods earlier covered under clause (a) is subsequently covered under this clause, the value of ‘A’ shall be arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof and the amount ‘A’ shall be credited to the electronic credit ledger; CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Explanation.- An item of capital goods declared under clause (a) on its receipt shall not attract the provisions of sub-section (4) of section 18, if it is subsequently covered under this clause. (d) the aggregate of the amounts of ‘A’ (Total of all capital assets used for taxable & exempt supplies) credited to the electronic credit ledger under clause (c), to be denoted as ‘Tc’, shall be the common credit in respect of capital goods for a tax period: Provided that where any capital goods earlier covered under clause (b) is subsequently covered under clause (c), the value of ‘A’ arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof shall be added to the aggregate value ‘Tc’; (e) the amount of input tax credit attributable to a tax period on common capital goods during their useful life, be denoted as ‘Tm’ and calculated as Tm=Tc÷60 (f) the amount of input tax credit, at the beginning of a tax period, on all common capital goods whose useful life remains during the tax period, be denoted as ‘Tr’ and shall be the aggregate of ‘Tm’ for all such capital goods; CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases g) the amount of common credit attributable towards exempted supplies, be denoted as ‘Te’, and calculated as Te=(E÷ F) x Tr where, ‘E’ is the aggregate value of exempt supplies, made, during the tax period, and ‘F’ is the total turnover of the registered person during the tax period: Provided that where the registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of ‘E/F’ shall be calculated by taking values of ‘E’ and ‘F’ of the last tax period for which the details of such turnover are available, previous to the month during which the said value of ‘E/F’ is to be calculated; Explanation.- For the purposes of this clause, it is hereby clarified that the aggregate value of exempt supplies and the total turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule; (h) the amount Te along with the applicable interest shall, during every tax period of the useful life of the concerned capital goods, be added to the output tax liability of the person making such claim of credit. CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Case Study : Capital Goods used for Taxable and Exempt Supplies: Purchase of Capital Goods in April 2018 CG 1 : ITC Rs 50,000 - Used Exclusively for Exempt Supplies CG 2 : ITC Rs 1,00,000 – Used Exclusively for Taxable Supplies CG 3 : ITC Rs 60,000 – Used for Taxable & Exempt Supplies CG 4 : ITC Rs – Used for Taxable & Exempt Supplies Total Turnover during the month is Rs 15,00,000 out of which Rs 5,00,000 is for Exempt Supplies. Purchase of Capital Goods in May 2018 CG 5 : ITC Rs 60,000 – Used for Taxable & Exempt Supplies Total T/O during the month of may is Rs 9,00,000 out of which Rs 6,00,000 is for Exempt Supplies. Total T/O during the month of June is Rs 12,00,000 out of which Rs 6,00,000 is for Exempt Supplies. Calculate ITC to be reversed on capital goods for month of April & May ? CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Ans : For April Month CG 1: ITC shall be disallowed and shall be taken in Ineligible credit. So no credit in ECL. CG 2: ITC will be allowed fully and credit in ECL. CG 3 & CG 4: ITC will be first allowed fully and credit in ECL (Entire Rs will be credited in ECL in April). Now every month we need to reverse the credit as partly it is used for taxable and partly for exempt supplies. Credit of CG 3 of Rs 60,000 shall be denoted by A1 and Credit of CG 4 of Rs 30,000 shall be denoted by A2 Tc = A1 + A2 (Total Common Credit for all assets for April month) Hence Tc = Rs 90,000 (Rs 60,000 for CG 3 and Rs 30,000 for CG 4) Tm for April = Tc / 60 ie Rs 90,000 / 60 = Rs 1,500 per month Calculate Tr which is aggregrate of all Tm for all capital goods for all month Hence Tr = 1,500 (Tm for April) Calculate Te for April month = (Rs 1,500 * 5/15) = Rs 500 Hence Rs 500 is to be reversed for April month. CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Ans Cont : For May Month CG 5: ITC will be first allowed fully and credit in ECL (Entire Rs will be credited in ECL in May). Now every month we need to reverse the credit as partly it is used for taxable and partly for exempt supplies. Credit of Rs 60,000 shall be denoted by A. Tc = A (Since there is only 1 capital asset) Tm for May = Tc / 60 = 60,000/60 = Rs 1,000 Tr for May month shall be Tm for April + Tm for May Hence Tr will be Rs 2,500 (1, ,000) Calculate Te = Tr * Exempt Supply / Total Supply Hence Te = 2,500 * / = Rs 1667/- which is to be reversed for May month CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Ans Cont : For June Month CG 1: Now being used for Taxable and Exempt Supplies from 1st June Since CG 1 was used exclusively for Exempt supplies for one quarter hence 5% shall be disallowed (Part of Qtr is equal to full Qtr) Hence Common Credit for CG 1 shall be 47,500 (50000 – 5%) which will be entirely credited to ECL in June. Hence A for June month (assuming no capital goods addition) = CG 1 Hence A shall be 47,500 Tc for June also shall be 47,500 (Since only 1 A) Tm for June shall be Tc /60 = Rs 792 ( 47,500 / 60) Tr for June month shall be Tm for April + Tm for May + Tm for June Tr for June month = Rs 3,292 ( ) Te = Tr * Exempt Supply / Taxable Supply Hence Te = Rs 1,646 (3,292 * / ) Hence ITC of Rs 1,646 will be reversed during June month. CA PRATIK SUDHIR SHAH

ITC on Stock - When person becomes liable for Registration
A person who has applied for registration under the Act within thirty days from the date on which he becomes liable to registration and has been granted such registration shall, subject to such conditions and restrictions as may be prescribed, be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of CGST Act -section 18(1)(a) of CGST Act. The registered person shall within thirty days from the date of his becoming eligible to avail of input tax credit under section 18(1) shall make a declaration, electronically, on the Common Portal in form GST ITC-01 to the effect that he is eligible to avail of input tax credit as aforesaid. ITC on Capital Goods and Input Service lying in stock is not eligible. The declaration under clause (b) shall clearly specify the details relating to the inputs lying in stock or inputs contained in semi finished or finished goods lying in stock, or as the case may be, capital goods on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act. The details furnished in the declaration under clause (c) shall be duly certified by a practicing chartered account or cost accountant if the aggregate value of claim on account of central tax, State tax and integrated tax exceeds two lakh rupees. CA PRATIK SUDHIR SHAH

Eligibility of ITC in case of New Registrations – Sec 18(1)
Person liable for registration u/s 25(1) ( Who applies for registration within 30 days Entitled to credit of input tax w.r.t inputs held in stock, semi-finished or finished goods Relevant Date: As on the preceding date on which he becomes liable to pay tax © Indirect Taxes Committee, ICAI

Person liable for registration u/s 25(3)
Eligibility of ITC in case of New Registrations (Voluntary Registration) – Sec 18(1) Person liable for registration u/s 25(3) Entitled to credit of input tax w.r.t inputs held in stock, semi-finished or finished goods Relevant Date: As on the preceding date on which Registration is GRANTED © Indirect Taxes Committee, ICAI

ITC on Stock: Conversion from Composition to Regular
Where any registered taxable person ceases to pay tax under section 10 of CGST Act [which provides for composition scheme], he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under section 9 of CGST Act [on basis of transaction value]. Mr A was registered under Composition Scheme in On 1st Oct 2018 his turnover exceeded Rs 1.5 Crores. Hence he becomes liable to get registered on 1st Oct 2018 and Mr A shall be entitled to Input Tax Credit for Stock as on 30th Sept Credit on capital goods shall be reduced by such percentage as may be prescribed -section 18(1)(d) of CGST Act. CA PRATIK SUDHIR SHAH

ITC on Stock: Conversion from Exempt Supply to Taxable
Where an exempt supply of goods or services or both by a registered taxable person becomes a taxable supply, such person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable -section 18(1)(d) of CGST Act. Mr A was selling Exempted Goods in On 1st Oct 2018 Exemption on Goods was withdrawn. Mr A shall be entitled to Input Tax Credit for Stock as on 30th Sept Credit on capital goods shall be reduced by such percentage as may be prescribed -section 18(1)(d) of CGST Act. CA PRATIK SUDHIR SHAH

Switching from Composition / Exempt Supply to Normal Tax / Taxable Supply – Sec 18(1)
Person ceases to pay tax u/s 10 Entitled to credit of input tax w.r.t inputs held in stock, semi-finished or finished goods and Capital Goods Relevant Date: As on the preceding date on which liable to pay u/s 9 Goods or Services becoming taxable Entitled to credit of input tax w.r.t inputs held in stock, semi-finished or finished goods and Capital Goods Relevant Date: As on the preceding date from which supply becomes taxable © Indirect Taxes Committee, ICAI Credit on Capital Goods to be available after reducing 5% per quarter of a year or part from the date of invoice or such other document on which capital goods were received by taxable person

Reversal of ITC if goods become exempt or taxable person switches to composition scheme
If a taxable person switches over from normal scheme to composition scheme, or his product which was earlier taxable becomes exempt, he is required to reverse input tax credit of GST paid on Stock, WIP and Finished Goods on the day immediately preceding the date of such switch over. He is also required to reverse ITC taken on capital goods, after allowing deduction of 5% per quarter. He shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of such switch over or, as the case may be, the date of such exemption -section 18(4) of CGST Act After payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse -proviso to section 18(4) of CGST Act. CA PRATIK SUDHIR SHAH

Conditions for claiming credit under – Sec 18(1)
Purchase invoice should not be earlier than 1 year from the relevant date Declaration in Form GST ITC-01 to be filed within 30 days from the date of him becoming eligible Details of Inputs held in stock / semi finished or finished goods and capital goods to be furnished in Form GST ITC-01 within 30 days from the relevant date Declaration in Form GST ITC-01 to be certified by a practicing Chartered Accountant or Cost Accountant if the value of credit claimed exceeds Rs. 2,00,000 © Indirect Taxes Committee, ICAI

GST ITC 01: Credit on Inputs in Stock
In Case of New Registration: Applicant has filed application for registration within 30 days of becoming liable to pay GST and has been granted registration (other than voluntary registration). Registered person has the details of ITC for purchases on the day immediately preceding the day with effect from which he becomes liable to pay GST. Set Off of Capital Goods in not admissible. B) In Case of Voluntary Registration: Registered person has the details of ITC on stock as on the day immediately preceding the date of grant of registration. Set Off of Capital Goods is not admissible. C) In Case of Conversion from Composition to Regular: Registered person has the details of ITC on inputs/capital goods as on the day immediately preceding the day in which he opts out from composition. D) In Case of Conversion from Exempt to Taxable Supply: Registered person has the details of ITC on inputs/capital goods as on the day immediately preceding the day when goods becomes taxable. CA PRATIK SUDHIR SHAH

Steps for filing Form ITC 01: Login and Navigate to ITC-01 page Declaration for claim of input tax credit under sub-section (1) of section 18 ♣ Claim made under Section 18 (1) (a) ♣ Claim made under Section 18 (1) (d) Submit GST ITC-01 to freeze data Update Certifying Chartered Accountant or Cost Accountant Details where ITC is greater than Rs 2Lakhs. CA PRATIK SUDHIR SHAH

Cases Condition Benfit of Inputs Benefit of Capital Goods Sec 18 (1) (a) A person who has applied for registration with 30 days from the date from which he has become liable and has been granted the registration Yes, if held in stock for the followings :- Raw Material Semi-Finished goods Finished goods NO Sec 18 (1) (b) A person who takes voluntarily registration Section 18 (1)(c) A registered person who ceases to avail the benefit of Composition scheme ( Opt out of Composition scheme) Semi-Finished g Yes Section 18 (1)(d) Where any exempt supply of goods or services or both by a registered person becomes taxable supply CA PRATIK SUDHIR SHAH

GST ITC 02: Transfer of Business
A registered person shall, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee; The transferor shall also submit a copy of a certificate issued by a practicing chartered accountant or cost accountant certifying that the sale, merger, de- merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities (Transferor will Login and go to Returns and click on ITC 02 and fill the details) The transferee shall, on the common portal, accept the details so furnished by the transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger. (Transferee will login and go to User Services Tab and than click “ITC 02 pending for Action”). The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account. CA PRATIK SUDHIR SHAH

GST ITC 03: Conditions/events in which this form is required to be filed:- Where a registered person opts to pay tax under Composition scheme ( Chang from normal to composition scheme) Where there taxable supply becomes exempt Then:- Pay an amount equal to Credit of Input or Capital goods(as reduced by the points) or both availed by debit in electronic credit ledger or electronic cash ledger on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption. Due date to file such form: - On happening of such event/condition. No exact time period given. CA PRATIK SUDHIR SHAH

GST ITC 04: Conditions/events in which this form is required to be filed:- Inputs/Capital goods sent for job-work ( along with amendments if any) Inputs/Capital goods received back from job worker or sent out from business place of job-work ( along with amendments if any) Frequency of Filing: Quarterly Note: Details are to be given even in case goods were send to job worker in between the quarter and fully/partially received between the quarters. Due date to file such form: - No such date prescribed. As per notification 53/2017 dated 28/10/2017, due date to file such form has been extended to 30th Nov, 2017. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. Can GST paid on reverse charge basis be considered as input tax? Yes. The definition of input tax includes the tax payable under the reverse charge. Q. Can a person take input tax credit without payment of consideration for the supply along with tax to the supplier? Yes, the recipient can take ITC. But he is required to pay the consideration along with tax within 180 days from the date of issue of invoice. This condition is not applicable where tax is payable on reverse charge basis. Q. What would happen of the ITC taken by the registered person if he has not paid the consideration along with tax within 180 days from the date of issue of invoice? ITC will be reversed from ECL if balance is available and if not than ITC so reversed needs to be paid. Interest has to be 18% / 24% for the period from Date of availment till date of payment of Interest. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. Who will get the ITC where goods have been delivered to a person other than taxable person (‘bill to’- ‘ship to ’scenarios)? It would be deemed that the registered person has received the goods when the goods have been delivered to a third party on the direction of such taxable person. So ITC will be available to the person on whose order the goods are delivered to third person. Q. What is the time limit for taking ITC ? Time limit is 20th October of next financial year or date of filing annual return whichever is earlier. Q. Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act,1961, will ITC be allowed in such cases? The input tax credit shall not be allowed on the said tax component in respect of which depreciation has been claimed. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. A taxable person is in the business of information technology. He buys a motor vehicle for use of his Executive Directors. Can he avail the ITC in respect of GST paid on purchase of such motor vehicle? No. ITC on motor vehicles can be availed only if the taxable person is in the business of transport of passengers or goods or is providing the services of imparting training on motor vehicles. Q. Can a registered person get ITC with respect of goods or services used for construction of a building for business purposes? No. ITC on goods or services by a person for construction of immovable property, other than plant and machinery, is not allowed. Plant and machinery cover only apparatus, equipment, and machinery fixed to earth by foundation or structural support, and excludes land and building, among other things CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. A person becomes liable to pay tax on 1st August, 2017 and has obtained registration on 15th August, Such person is eligible for input tax credit on inputs held in stock as on: (a) 1st August, 2017 (b) 31st July, 2017 (c) 15th August, 2017 (d) He cannot take credit for the past period Ans: 31st July, 2017 ie Date immediately preceding the date when he becomes liable Q. What is the eligibility of input tax credit on inputs in stock for a person who obtains voluntary registration? Ans: The person who obtains voluntary registration is entitled to take the input tax credit of input tax on inputs in stock, inputs in semi- finished goods and finished goods in stock, held on the day immediately preceding the date of registration. Q. Which of the following is included for computation of taxable supplies for the purpose of availing credit? (a) Zero-rated supplies (b) Exempt supplies (c) Both Ans: Zero rated supplies. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. A person paying tax under compounding scheme crosses the compounding threshold and becomes a regular taxable person. Can he avail ITC and if so from what date? He can avail ITC in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock and on capital goods (reduced by prescribed percentage points) on the day immediately preceding the date from which he ceases to be eligible for composition scheme. Q. Are there any special provisions in respect of banking companies? A banking company or a financial institution including a non-banking financial company engaged in supply of specified services would either avail proportionate credit or avail 50% of the eligible input tax credit. Q. Mr. B applies for voluntary registration on 5th July, 2017 and obtained registration on 22nd July, Mr. B is eligible for input tax credit on inputs in stock as on……….. Ans: Mr. B is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on 21st July, This is subject to the further condition that the invoices pertaining to such inputs should not be more than a year old. Mr. B cannot take input tax credit in respect of capital goods. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. Can GST Input Tax Credit be used against payment of Interest and Penalty ? No as per Sec 49 (4) of CGST Act, amount available in ECL may be used for making any payment towards output tax payable only. Q. Whether Input Tax Credit can be availed on Input Services and Capital Goods (lying in stock) when there is application for New Registration or Voluntary Registration under Section 18 ? No , Credit can be availed only on the Stocks held (Inputs, Semi-Finished and Finished) preceding the day when he is liable to pay or preceding the grant of Voluntary Registration. Input Services and Capital Goods are not eligible for ITC. Q. Whether Credit of GST paid on Insurance Exp, Tyre Purchase & servicing expenses of CAR shown as Fixed Asset in Business is eligible for credit or not ? No, Section 17(5) uses the word “in respect of” motor vehicle. It covers repairs and maintenance and other related expenses of motor vehicles. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. We are Iron and Steel Industry. We took our client to Hotel for dinner. Can I Claim ITC for GST paid on Food ? No we cannot claim as per Section 17(5). Q. Mr A has shop of Mobiles. During Diwali he gifted few mobiles to his very old and trusted customers. Will credit be disallowed ? Yes, As per Section 17(5)(h), ITC shall not be available if goods are lost, stolen, destroyed, written off or disposed of by way of Gift or Free Samples. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. A Ltd is engaged in manufacture of Machinery. It procured following items Calculate amount of ITC available ? Ans Sr No Particluars Amount (Rs) 1 Electrical Transformers to be used in manufacturing process 5,20,000 2 Trucks used for transportation of Raw Material 1,00,000 3 Raw Material Purchased 2,00,000 4 Food Items for Employees working in factory 25,000 CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. A has an ITC of Rs 3000 under IGST, Rs.700 in SGST and Rs. 600 in CGST during September, 2017. During that month, A has a tax liability of Rs.2000/‐ in IGST, Rs in SGST and Rs.5000 in CGST. QQ Q. A has supplied services worth Rs. 1 lakh to B. A is a registered person and has recovered GST at the appropriate rate from B. However, A has not issued a tax invoice. A cannot claim ITC since he has not received Tax Invoice. Particulars IGST CGST SGST Output GST Liability 2000 5000 Input GST Liability 3000 600 700 Balance (1000) 4400 4300 Set Off of IGST Refund 1000 Balance GST Payable 3400 CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. A has a credit balance of Rs.2000 under IGST Act, Rs.1000 under CGST, and Rs.800 under SGST during January, During the same month, A’s tax liability was IGST Rs.4000, CGST Rs.5000 and SGST Rs.500. QQ Q. ABC Ltd. raises an invoice for supply of goods on DEF Ltd. No goods are actually delivered, but tax is paid appropriately by ABC Ltd. This is done merely to show increased turnover for improving credit standing of the company Particulars IGST CGST SGST Output GST Liability 4000 5000 500 Input GST Liability (2000) (1000) (800) Balance 2000 (300) Set Off of SGST Refund 300 Balance GST Payable 1700 CA PRATIK SUDHIR SHAH

THANK YOU PRATIK SUDHIR SHAH CHARTERED ACCOUNTANT
CA PRATIK SUDHIR SHAH PRATIK SUDHIR SHAH CHARTERED ACCOUNTANT

INPUT TAX CREDIT UNDER GST LAW

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